IRC 831(b) Micro-Captives after the PATH Act: Meeting New Diversification Requirements and Avoiding IRS Scrutiny

Duration: 60 Minutes
This webinar will provide tax counsel and advisers with practical tools and guidance to ensure that clients utilizing micro-captive insurance companies are fully compliant with IRC Section 831(b) rules to preserve legitimate tax deduction of premiums. The panelist will discuss the PATH Act's changes in both tax benefits and compliance burdens to micro-captives, and offer detailed guidance on structuring micro-captives to be fully compliant with Section 831(b) requirements.
IRC 831(b) Micro-Captives
Instructor: Hale Stewart
Product ID: 501821
The speaker will discuss the history and flexibility of captive insurance companies and how the lessons learned from 60 years of captives can be used to effectively utilize captives to manage and reduce a company's risk of IRS scrutiny.

Objectives of the Presentation
After completing this course, you will be able to:
  • Identify potential IRS issues with Section 831(b) micro-captive insurance companies
  • Comply with the rules regarding prohibiting excessive premiums and prearranged deduction schemes
  • Understand the IRS' requirements for captives to have 'insurance risk,' risk shifting, and risk distribution
  • Know the changes brought about by the 2015 PATH Act affecting micro-captives structures, particularly the two-pronged diversification requirements for qualification under Section 831(b)
Why Should you Attend
The use of captive insurance companies, particularly Section 831(b) 'micro-captives,' has come under increased IRS scrutiny. The Service has explicitly recognized micro-captives as a legitimate form of risk protection, but has expressed concern that these vehicles are being used more as a wealth transfer device than as legitimate insurance. The IRS has again placed Section 831(b) micro-captives on its 2016 'Dirty Dozen List of Tax Scams,' warning that certain micro-captives represent an 'abuse involving a legitimate tax structure.'

The PATH Act of 2015 made several changes to the interpretation of micro-captives under Section 831(b). These provisions have all but guaranteed both that micro-captives will continue to be used and likely will increase in frequency, and that the IRS will step up its examinations of the micro-captive arrangements. The PATH Act increased the 831(b) deductible premium limit from $1.2 million to $2.2 million, which will allow small businesses to better manage their coverage and risk profiles.

However, the Act also provided new diversification requirements for 831(b) structures and provided no 'grandfathering' mechanism. Micro-captives that do not meet the diversification requirements must be restructured prior to December 31, 2016, to maintain tax benefits under Section 831(b).

Areas Covered
  • Recent Cases
    • Securitas
    • Rent-a-Center
    • RVI
    • Legislative Changes
  • Dirty dozen listing and establishing business purpose
  • Anti-avoidance law
    • Substance over form
    • Business Purpose
    • Economic Substance
  • IRS broad enforcement capabilities
The speaker will also discuss:
  • Risk shifting and distribution
  • IRS enforcement areas in micro-captives, including excessive premiums and risk definition
  • PATH Act changes to 831(b) structuring
  • Diversification requirements and tests
  • Response to IRS challenges of 831(b) micro-captive structures
Who will Benefit
  • Accountants
  • Financial Advisors
  • Tax Attorneys
  • CPAs
  • Business Owners
$300
Recorded Session for one participant
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  • Upon purchase of the recorded session a link will be updated on your OCP Account within 24 hours
  • Please click on the link to access the Recorded Session
  • Presentation handouts in downloadable PDF format will be updated on your OCP Account within 24 hours of the purchase of the product
  • Download the Certificate of Attendance and Purchase Invoice from your OCP Account after 48 hours of the product Purchase
  • Please share your valuable Feedback at the end of the session
Instructor Profile:
Mr. Stewart received his JD from the South Texas School of Law in 2003 and earned an LL.M. in international and domestic taxation from the Thomas Jefferson School of Law where he graduated magna cum laude. Mr. Stewart has provided continuing education for the American Bar Association and his articles have been printed in American Bar Association publications. He currently provides legal commentary and analysis for the Tax Analysts tax service and has been cited on CNN.
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